Page 2 - Omega @ Auditing

Assignment 1 (Deficiencies)

Cherry Blossom Co (Cherry) manufactures custom made furniture and its year

end is 30 April. The company purchases its raw materials from a wide range of
suppliers. Below is a description of Cherry’s purchasing system.

When production supervisors require raw materials, they complete a requisition
form and this is submitted to the purchase ordering department. Requisition

forms do not require authorisation and no reference is made to the current
inventory levels of the materials being requested. Staff in the purchase ordering
department use the requisitions toraise sequentially numbered purchase orders

based on the approved suppliers list, which was last updated 24 months ago.

The purchasing director authorises the orders prior to these being sent to the
suppliers.
When the goods are received, the warehouse department verifies the quantity to

the suppliers despatch note and checks that the quality of the goods received are
satisfactory.

They complete a sequentially numbered goods received note (GRN) and send a
copy of the GRN to the finance department. Purchase invoices are sent directly to

the purchase ledger clerk, who stores them in a manual file until the end of each
week. He then inputs them into the purchase ledger using batch controls and

gives each invoice a unique number based on the supplier code.

The invoices are reviewed and authorised for payment by the finance director,

but the actual payment is only made 60 days after the invoice is input into the
system.

Required:

In respect of the purchasing system of Cherry Blossom Co:

(i) Identify and explain FIVE deficiencies; and

(ii) Recommend a control to address each of these deficiencies.